ITO, New Delhi V. M/s. Tianjin Tianshi India Pvt. Ltd., New Delhi

ITA 3991/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3883 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 26-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B PRATHAP
• Keywords: Related party transaction; Transfer pricing; Residential status; International transaction; Permanent establishment
• Section: 92C; 92D; 92B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : H NEW DELHI) (DELHI BENCH : H NEW DELHI) (DELHI BENCH : H NEW DELHI) (DELHI BENCH : H NEW DELHI) BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER SHRI K.D. RANJAN, ACCOUNTANT MEMBER SHRI K.D. RANJAN, ACCOUNTANT MEMBER SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A. NO.3991/DEL./2010 I.T.A. NO.3991/DEL./2010 I.T.A. NO.3991/DEL./2010 I.T.A. NO.3991/DEL./2010 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006- -- -07) 07) 07) 07) ITO, WARD 16(3), ITO, WARD 16(3), ITO, WARD 16(3), ITO, WARD 16(3), VS. VS. VS. VS. TIANJIN TIANSHI INDIA PVT. LT TIANJIN TIANSHI INDIA PVT. LT TIANJIN TIANSHI INDIA PVT. LT TIANJIN TIANSHI INDIA PVT. LTD., D.,D., D., NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 10, COMMUNITY CENTRE, 10, COMMUNITY CENTRE, 10, COMMUNITY CENTRE, 10, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, BASANT LOK, VASANT VIHAR, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (PAN/GIR NO.AABCT5611J) (PAN/GIR NO.AABCT5611J) (PAN/GIR NO.AABCT5611J) (PAN/GIR NO.AABCT5611J) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. B. PRATHAP, CA ASSESSEE BY : SH. B. PRATHAP, CA ASSESSEE BY : SH. B. PRATHAP, CA ASSESSEE BY : SH. B. PRATHAP, CA REVENUE BY : MS. REENA S. PURI, CIT(DR) REVENUE BY : MS. REENA S. PURI, CIT(DR) REVENUE BY : MS. REENA S. PURI, CIT(DR) REVENUE BY : MS. REENA S. PURI, CIT(DR) ORDER ORDER ORDER ORDER PER A.D. JAIN, JM PER A.D. JAIN, JM PER A.D. JAIN, JM PER A.D. JAIN, JM THIS IS DEPARTMENTS APPEAL FOR AY 2006-07, AGAINST TH E ORDER DATED 29.6.2010 PASSED BY THE CIT(A). THE FOLLOWING GROUN DS HAVE BEEN TAKEN: THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW BY DELE TING ADDITION OF `2,78,76,273 ON ACCOUNT OF ADJUSTMENT IN ARMS LENGTH P RICE COMPUTATION DETERMINED BY TPO ON THE GROUND THAT, THE TRANS ACTIONS BETWEEN THE ASSESSEE COMPANY AND ITS NON-RESIDENT ASSOC IATE ENTERPRISES, HAD ORIGINATED AND HAD TAKEN PLACE INSIDE INDIA AND WERE THEREFORE NOT COVERED UNDER THE TRANSFER PRICING PROVI SIONS, IGNORING THAT: I) THE PRODUCTS SOLD TO THE ASSESSEE BY THE NON RESIDEN T ASSOCIATE ENTERPRISE WERE IMPORTED BY IT FROM ITS OWN HEAD OFFICE IN CHINA BESIDES FROM OTHER RELATED AND UNRELATED PARTIES. II) THE BUSINESS ACTIVITIES OF THE BRANCH OFFICE OF THE NON-RESIDENT ASSOCIATE ENTERPRISES IN INDIA CANNOT BE SAID TO BE ENTI RELY INDEPENDENT OF THE POLICIES, DECISIONS AND INFLUENCES OF ITS HEAD OFFICE IN CHINA. 2. THE ASSESSEE COMPANY IS A DOMESTIC COMPANY HAVING RESIDENTIAL STATUS AS RESIDENT. IT IS ONE OF THE GROUP COMPANIES OF TIENS, A CHINESE GROUP OF COMPANIES. IT IS IN THE BUSINESS OF TRADING/D ISTRIBUTION OF FOOD SUPPLEMENTS AND HEALTH CARE EQUIPMENT. THE CONCERNED PRODUCTS ARE MANUFACTURED ABROAD, IN CHINA, OR AT OTHER PLACES, BY A GROUP CONCERN OF THE I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 2 ASSESSEE, INCLUDING TIANJIN TIANSHI BIOLOGICAL DEV ELOPMENT COMPANY LTD. (TTBDC, FOR SHORT). TTBDC HAS ESTABLISHED A PERMA NENT ESTABLISHMENT (PE) IN INDIA. 3. DURING THE YEAR, THE ASSESSEE COMPANY MADE PURCHAS E TRANSACTIONS OF `174972636 FROM THE PE OF TTBDC. THE AO MADE A REFE RENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENG TH PRICE U/S 92CA(3) OF THE I.T. ACT IN RESPECT OF THESE PURCHASE TRANSACTIONS. THE TPO, VIDE HIS ORDER DATED 01.04.2009, DIRECTED THE AO TO REDUCE `9137476 FR OM THE PURCHASE PRICES PAID TO THE ASSOCIATE ENTERPRISE (AE) IN RESPECT OF THE HEALTH EQUIPMENT SEGMENT AND `18738797 FROM THE PRICE PAID TO THE (AE), CONCERNING THE FOOD SUPPLEMENTS SEGMENT. AS SUCH, THE TOTAL PURCHASES OF THE ASSESSEE WERE TO BE REVISED TO `27876273, KEEPING IN CONSIDERATION, THE ARMS LENGTH PRICE. 4. THE AO, VIDE ORDER DATED 22.05.2009, REDUCED THE S UM OF `27876273 FROM THE TOTAL PURCHASE PRICE OF `174972636 PAID BY THE ASSESSEE TO THE AE. WHILE DOING SO, IT WAS OBSERVED THAT SINCE THE CONTENTION OF THE ASSESSEE HAD ALREADY BEEN CONSIDERED BY THE TPO, THE SAME WAS BEIN G REJECTED. 5. THE CIT(A), BY VIRTUE OF THE IMPUGNED ORDER, ALLOW ING THE ASSESSEES APPEAL, DELETED THE ADJUSTMENT FOR COMPUTATION OF ALP AS DETERMINED BY THE TPO AND APPLIED BY THE AO. 6. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 7. THE LD.DR HAS CONTENDED THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF `27876273 MADE ON ACCOUNT OF ADJUSTMENT IN COMPUTATION OF ALP DETERMINED BY THE TPO; THAT THE CIT(A) HAS GONE WRONG I N OBSERVING THAT THE TRANSACTIONS BETWEEN THE ASSESSEE COMPANY AND ITS NON RE SIDENT ASSOCIATE ENTERPRISE HAD ORIGINATED AND TAKEN PLACE WITHIN INDIA AND SO, THEY WERE NOT COVERED UNDER THE TRANSFER PRICING PROVISIONS; THAT WH ILE DOING SO, THE CIT(A) ERRED IN IGNORING THAT THE PRODUCTS SOLD TO THE ASSESSEE BY ITS AE WERE IMPORTED BY IT FROM ITS OWN HEAD OFFICE IN CHINA AND F ROM OTHER RELATED PARTIES; AND THAT IT HAS WRONGLY BEEN IGNORED THAT THE BUS INESS ACTIVITIES OF THE PE OF THE AE IN INDIA CANNOT BE SAID TO BE ENTIRELY INDEPENDENT OF THE I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 3 POLICIES, DECISIONS AND INFLUENCES OF ITS HEAD OFFIC E IN CHINA. IT HAS BEEN ARGUED THAT THE PE IS NEITHER A PERSON WITHIN THE MEANI NG OF SECTION 2(31) OF THE ACT, NOR A RESIDENT COMPANY UNDER THE PROVISI ONS OF SECTION 6(3) OF THE ACT; THAT IT IS A FOREIGN COMPANY, ADMITTEDLY TAXED AT D IFFERENTIAL RATES. IT HAS BEEN PLEADED THAT SECTION 92F(III) OF THE ACT DEFINE S ENTERPRISE TO MEAN A PERSON WHO IS, OR HAS BEEN, OR IS PROPOSED TO BE, ENGAGED IN ANY ACTIVITY RELATING TO THE PRODUCTION, STORAGE, SUPPLY, DISTRIBUTION, ACQUISITION OR CONTROL OF ARTICLES OR GOODS, OR KNOW-HOW, PATENTS, RATES, TRADE MARKS, LICENSES, FRANCHISES, ENTERPRISES. IT HAS BEEN ARGUED THAT IN THE PRESENT CASE, THE PE IS NOT A RESIDENT. IT HAS BEEN STRESSED THAT IN VIEW OF THES E SPECIFIC PROVISIONS OF TRANSFER PRICING, THE CIT(A) HAS ERRED IN DELETIN G THE ADDITION CORRECTLY MADE BY THE AO; THAT THE TRANSACTIONS UNDER CONSIDERATION BEING INTERNATIONAL TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES [S.92B(I)] THEY WERE REQUIRED TO BE AT ALP. IT HAS BEEN ARGUED THAT THE CIT(A) HAS ERRED ON OBSERVING THAT THE PROVISIONS OF CHAPTER X OF THE I.T. A CT ARE NOT APPLICABLE TO THE TRANSACTIONS INVOLVED HEREIN, AS THE TRANSACTIONS INV OLVED ARE NOT CROSS BORDER TRANSACTIONS SINCE BOTH, THE SELLER AS WELL AS TH E PURCHASER ARE SUBJECTED TO INDIAN TAX JURISDICTION; THAT REMARKABLY, THE CIT(A) HAS HIMSELF OBSERVED EXISTENCE OF AN AE AND A FOREIGN COMPANY IN THE STATUS OF NON- RESIDENT TO BE THE BASIC CONDITIONS REQUISITE TO INVOKE TH E PROVISIONS OF TRANSFER PRICING; THAT STILL, THE ADDITION HAS BEEN DELETE D, DESPITE THE APPLICABILITY OF THE ABOVE SPECIFIC PROVISIONS; THAT THE CIT(A) HAS ERRED IN OBSERVING THAT THE LEGISLATIVE INTENT BEHIND THE ENACTMENT O F SECTION 92B, WHICH DEFINES INTERNATIONAL TRANSACTION, IS TO SEE PR OFIT MOTIVE; THAT THIS IS ERRONEOUS, THE INTENTION OF THE LEGISLATURE IS TO BE S EEN ONLY WHERE THE THERE IS AN AMBIGUITY IN THE PROVISION AS HELD IN EFFE CT, INSTRUMENTARIUM , IN RE, 272 ITR 499 (AAR); THAT IN THE CASE AT HAND THERE W AS NO REQUIREMENT TO GO TO THE INTENTION OF THE LEGISLATURE BEHIND THE ENACTMEN T OF SECTION 92B OF THE ACT, SINCE THE PROVISIONS OF THE SAID SECTION ARE AM PLY CLEAR AND THERE IS NO AMBIGUITY THEREIN; THAT HERE, THE PE IS A PART OF THE F OREIGN ENTERPRISE; THAT THE CONCERNED TRANSACTIONS WERE WITH ANOTHER ASSOCIATED E NTERPRISES; THAT SO, THE TRANSFER PRICING PROVISIONS ARE SQUARELY ATTRAC TED, IRRESPECTIVE OF THE FACT THAT THE ENTITY MAKING THE SALES TO THE ASSESSEE WAS SU BJECTED TO TAXES IN INDIA; THAT THE CIT(A) HAS ERRED IN PLACING RELIANC E ON DCIT VS. INDO- I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 4 AMERICAN JEWELRY A DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL; THAT AS PER THE PROVISIONS OF SECTION 92(3), THE PROVISIONS O F SECTION 92 SHALL NOT APPLY WHERE THE COMPUTATION OF INCOME, OR THE DETERMINATI ON OF THE ALLOWANCE FOR ANY EXPENSE OR INTEREST, OR THE DETERMINA TION OF ANY COST OR EXPENSE ALLOCATED OR APPORTIONED, OR CONTRIBUTED, AS THE EFFECT OF REDUCING THE INCOME CHARGEABLE TO TAX OR INCREASING THE LOSS, CO MPUTED ON THE BASIS OF ENTRIES MADE IN THE BOOKS OF ACCOUNT IN RESPECT OF THE P REVIOUS YEAR IN WHICH THE INTERNATIONAL TRANSACTION WAS ENTERED INTO; THAT THESE PR OVISIONS HAVE NOT BEEN TAKEN INTO CONSIDERATION BY THE CIT(A) WHILE PASSI NG THE IMPUGNED ORDER; THAT IN INSTRUMENTATIUM CORPORATION, IN RE, 143 TAXMAN 01, (AAR N. DELHI) (COPY PLACED ON RECORD), THE AO IS ENJOINED TO WORK OUT THE ARMS LENGTH PRICE AS PER SECTION 92(1) AND 92(2), FOLLOWIN G THE METHOD GIVEN IN SECTION 92C OF THE ACT; THAT IT IS ONLY IF THE AO COMES TO THE CONCLUSION THAT THE INTEREST OF REVENUE WOULD BE BETTER SERVED BY NOT APP LYING THE SECTIONS 92(1) & 92(2) OF THE ACT, THAT THE AO WILL TAKE RECOURSE TO SECTION 92(3); THAT THE ORDER UNDER APPEAL HAS BEEN PASSED IN OBLIVION O F THIS SETTLED POSITION; AND THAT THEREFORE, ORDER UNDER APPEAL REQUIRES TO BE S ET ASIDE AND THAT OF THE AO NEEDS TO BE REVIVED, WHICH BE ORDERED TO BE DON E WHILE ALLOWING THE APPEAL FILED BY THE DEPARTMENT. 8. THE LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT SINCE THE PURCHASE TRANSACTIONS IN QUESTION WERE MADE BY THE ASSE SSEE WITH AN ASSOCIATE ENTERPRISE IN INDIA SINCE THESE TRANSACTIONS H AVE BEEN SUBJECT TO TRANSFER PRICING SCRUTINY FOR COMPUTATION OF ARMS LENG TH PRICE, THE SAID PURCHASE TRANSACTIONS HAVE TO BE INFERRED TO HAVE BEEN MADE AT PRICES HIGHER THAN ARMS LENGTH PRICES; THAT THE AE WITH WHICH THE PURCH ASE TRANSACTIONS HAVE BEEN MADE BY THE ASSESSEE, IS THE INDIAN BRANCH OFFICE OF TTBDC; THAT THE SAID AE IS A PERMANENT ESTABLISHMENT OF TTBDC IN IN DIA; THAT IT IS A FULL- FLEDGED ESTABLISHMENT FUNCTIONING IN INDIA AND MAINTAIN ING SEPARATE BOOKS OF ACCOUNT; THAT IT IS INDEPENDENTLY ASSESSED TO INCOME TAX I N INDIA, FOR PROFITS ATTRIBUTABLE TO ITS FUNCTIONING IN INDIA; THAT IT HAS A PAN AND IS ASSESSED IN THE JURISDICTION OF THE DDIT, INTERNATIONAL TAXATION, CIRCLE 2(2), NEW DELHI; THAT THE AE IMPORTED GOODS FROM ITS HEAD OFFICE AT CHINA AND FROM VARIOUS OTHER AES IN CHINA AND IN OTHER COUNTRIES, BESIDES FROM CER TAIN OTHER NON RELATED I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 5 PARTIES ABROAD; THAT THESE IMPORTS WERE REGULAR COMMERCI AL TRANSACTIONS, HAVING PROPER COMMERCIAL INVOICES RAISED IN THE NAME OF THE AE IN INDIA; THAT IMPORT DUTY PAYMENTS WITH REGARD TO SUCH IMPORTS WERE MAD E IN INDIA; THAT THE DELIVERY WAS MADE IN THE NAME OF THE AE IN INDIA; THAT THE ABSOLUTE TITLE TO THE GOODS PASSED IN THE NAME OF THE AE IN INDIA; THAT IT WAS AFTER SUCH IMPORT THAT THE AE SOLD THE GOODS TO THE ASSESSEE COMPANY; THAT THIS SALE, OBVIOUSLY, ORIGINATED IN INDIA, HAVING SEPARATE SALE INVOICES; THAT SUCH SALES WERE THE REGULAR COMMERCIAL TRANSACTIONS, ATTRACTING SALE S-TAX, VAT AND OTHER REGULATIONS; THAT THEREFORE, THERE WAS NO CROSS BORDER TR ANSACTION INVOLVED IN SUCH SALE; THAT FURTHER MORE, AE WAS PUT TO INDEPENDENT TRANSFER PRICING SCRUTINY FOR THE IMPORTS MADE BY IT FROM ITS HEAD OFFICE AT CHINA AND OTHER AES ABROAD; THAT THE AE IS ASSESSED IN INDIA, IN THE STA TUS OF A FOREIGN COMPANY; THAT IT IS CHARGEABLE TO INCOME-TAX IN INDIA AT A HIGHER RATE OF TAX; THAT NO SHIFTING OF PROFITS OUTSIDE INDIA OR EROSION OF TAXES IN INDIA IS INVOLVED, THAT THERE IS EVEN NO MOTIVE TO SHIFT PROFITS OR TO EVADE TA X IN INDIA IN THE CONCERNED TRANSACTION; THAT IN A TRANSACTION BETWEEN TWO E NTITIES HAPPENING WHOLLY IN INDIA, THERE WILL BE NO WAY OF TRANSFERRING PROFIT OUTSIDE INDIA OR SHIFTING PROFITS OUTSIDE INDIA, AS HELD IN PHILIPS SO FTWRE CENTRE PVT. LTD., 26 SOT 226(BANG.); THAT IN THE PRESENT CASE, THE RELATED PAR TY TRANSACTIONS ARE WITH AN ASSESSEE WHO IS A HIGHER RATE TAXPAYER IN INDI A; THAT THAT BEING SO, TRANSFER PRICING PROVISIONS DO NOT APPLY; THAT THE REQUI REMENT FOR THE AO TO COMPUTE THE TOTAL INCOME WITH THE ALP DETERMINED BY THE TPO IS ONLY FOR PROCEDURAL SUPPORT AND IT OBVIATES THE NEED FOR THE AO TO MAKE ALP COMPUTATION; THAT THE TRANSFER PRICING REQUIRES TO CURTAIL DIVERSION OF PROFITS OUTSIDE INDIA AND TAX EROSION IN INDIA, NEITHER OF WHI CH IS THE CASE HEREIN; THAT AS HELD BY THE ITAT, MUMBAI BENCH, IN DRESDNER BANK AG VS. ACIT, TRANSFER PRICING PROVISION ONLY PROVIDE THAT INCOME FROM INTERN ATIONAL TRANSACTION IS TO BE COMPUTED AT ARMS LENGTH PRICE AND THERE IS NO INTRO DUCTION OF ANY NEW INCOME; THAT IN THE PRESENT CASE, THERE IS NO CROSS BORD ER TRANSACTION INVOLVED AND SO, THE PROVISIONS OF CHAPTER X OF THE I .T. ACT DO NOT GET ATTRACTED; THAT THE ENTITY MAKING THE SALES TO THE ASSESSEE IS LOCATED IN INDIA THROUGH ITS PE AND IS SUBJECT TO SALES-TAX/VAT AND OTHER TAXES; THAT THE INVOICES CONCERNING THE SALES WERE DULY FURNISHED; TH AT THEY ESTABLISH THAT THE SALES WERE MADE SUBJECT TO SALES-TAX/VAT; THAT THE ASS ESSEE DID NOT MAKE I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 6 ANY DIRECT TRANSACTIONS WITH THE HEAD OFFICE OF THE AE AT CHINA; THAT THE ASSESSEE HAS NOT BEEN ATTRIBUTED WITH ANY MOTIVE TO SHIFT P ROFITS OUTSIDE INDIA OR TO EVADE TAXES IN INDIA; AND THAT IN THESE FACTS AND C IRCUMSTANCES, THERE BEING NO ERROR WHATSOEVER IN THE ORDER OF THE CIT(A), THE SAME BE MAINTAINED BY DISMISSING THE APPEAL FILED BY THE DEPARTMENT. 9. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATER IAL ON RECORD. THE QUESTION HERE IS AS TO WHETHER CIT(A) HAS CORRECTLY HELD THE PROVISIONS OF CHAPTER X OF THE INCOME TAX ACT, RELATING TO TRANSFER PRI CING, TO BE NOT APPLICABLE. UNDISPUTEDLY, THE FACTS ARE THAT THE ASSESSE E IS A DOMESTIC COMPANY, HAVING STATUS OF RESIDENT. IT IS ONE OF THE GROUP COMPANIES OF THE CHINA BASED TIENS GROUP OF COMPANIES. IT TRADES/D ISTRIBUTES FOOD SUPPLEMENTS AND HEALTH CARE EQUIPMENT MANUFACTURED IN C HINA AND AT OTHER PLACES, BY GROUP CONCERNS. TTBDC, ANOTHER GROUP ENTI TY INCORPORATED IN CHINA, HAS ESTABLISHED A FOREIGN BRANCH OFFICE IN IN DIA, HAVING STATUS OF NON- RESIDENT. THIS IS THE PERMANENT ESTABLISHMENT OF TTBDC IN INDIA. THIS PE OF TTBDC, ASSOCIATE ENTERPRISE OF THE ASSESSEE COMPANY. THE PE IMPORTS PRODUCTS FROM ITS HEAD OFFICE IN CHINA AND FROM OTHER AES IN CHINA AND OTHER PLACES. THESE PRODUCTS ARE RESOLD TO THE ASSESSEE COM PANY IN INDIA. THE ASSESSEE COMPANY, IN TURN, SELLS THESE PRODUCTS IN IND IA THROUGH A NETWORK OF FRANCHISES AND DISTRIBUTORS. ON THE PURCHASES MADE BY THE PE FROM ABROAD, IMPORT DUTY IS PAID. THE PRODUCTS COME INTO INDIA IN TH E ABSOLUTE TITLE AND NAME OF THE PE. THE PE, BEING A FOREIGN COMPANY, IS TAXED AT HIGHER RATE THAN THAT CHARGED FROM DOMESTIC COMPANY. 10. THE ASSESSEE CONTENDS THAT THE SALE BY THE PE TO THE A SSESSEE ORIGINATES FROM INDIA UNDER INDIAN LAWS AND REGULATIO NS AND THAT SUCH TRANSACTIONS DO NOT FALL WITHIN THE AMBIT OF TRANSFER PRIC ING, DESPITE THE EXISTENCE OF SECTION 92B IN THE INCOME TAX ACT. 11. THE CIT(A), WHILE HOLDING IN FAVOUR OF THE ASSES SEE, HAS HELD THAT SINCE: (I) THERE ARE NO CROSS BORDER TRANSACTIONS INVOLVED, (II) THE ENTITY MAKING SALES TO THE ASSESSEE IS LOCATED IN INDIA THROUGH ITS PE AND IS SUBJECT TO SALES-TAX/VAT, THESE TRANSACTIONS CANNOT BE CALLED CROSS BORDER TRANSA CTIONS, BOTH THE SELLER AND THE ASSESSEE PURCHASER BEING SUBJECT TO INDIAN T AX JURISDICTION. I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 7 12. IT HAS FURTHER BEEN HELD THAT THE ASSESSEE DID NOT MA KE ANY TRANSACTION DIRECTLY WITH THE HEAD OFFICE OF THE AE, WITH ITS OWN HEAD OFFICE AT CHINA AND OTHER AES ABROAD FALL WITHIN THE AMBIT OF TRAN SFER PRICING; THAT THE PE HAS BEEN PUT TO INDEPENDENT TRANSFER PRICING SCRUTINY AND, IF ANY, TP ADJUSTMENT WAS CALLED FOR, THE SAME SHOULD HAVE BEEN I N THE CASE OF THE PE AND NOT THAT OF THE ASSESSEE COMPANY; AND THAT THE AO HAS NOT RECORDED ANY FINDING OF ANY MOTIVE OF THE ASSESSEE TO EITHER SHIFT PR OFITS OUTSIDE INDIA OR TO EVADE TAXES IN INDIA, IN THE RELATED PARTY TRANSACTIONS. 13. SECTION 92B OF THE ACT DEFINES INTERNATIONAL TRANSA CTION. THIS SECTION READS AS FOLLOWS: 92B (1)FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92 , 92C, 92D AND 92E, INTERNATIONAL TRANSACTION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BO TH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SAL E OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SE RVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION H AVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SU CH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXP ENSE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACI LITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRIS ES. 14. IT IS THUS CLEAR THAT AN INTERNATIONAL TRANSACTION WITHI N THE MEANING OF SECTION 92B(1) INVOLVES TWO OR MORE ASSOCIATED ENTERPRI SES. ANY OR ALL OF THESE ASSOCIATE ENTERPRISES NEED BE NON-RESIDENT. THIS IS THE PRIMARY CONDITION ATTRACTING APPLICABILITY OF SECTION 92B(1) OF TH E ACT. SO, AS IN THE PRESENT CASE, WHERE A TRANSACTION IS ENTERED INTO BY AES BEING A RESIDENT AND A NON-RESIDENT, THE TRANSACTION SHALL AMOUNT TO AN INTERNA TIONAL TRANSACTION FALLING U/S 92B(1) OF THE ACT. IN OTHER WORDS, WHERE EITHER OR BOTH OF THE AES ARE NON-RESIDENT, WOULD AMOUNT TO AN INTERNATIONAL TRANSA CTION WITHIN THE MEANING OF SECTION 92B(1) OF THE ACT. THAT BEING SO, I T DOES NOT MATTER THAT THE TRANSACTIONS IN QUESTION ARE NOT CROSS BORDER TRANSA CTIONS AS ENVISAGED BY CIT(A). THE AE IS A NON-RESIDENT COMPANY. AS SU CH, THE REQUIREMENT OF SECTION 92B(1) IS AMPLY MET AND THE TRANSACTIONS CONCERN ED ARE INTERNATIONAL TRANSACTIONS WITHIN THE MEANING OF THE SAID SECTION. THE REFORE, THE CIT(A) HAS ERRED IN HOLDING THAT CHAPTER X OF THE ACT IS NOT INV OKABLE. 15. THE FINDING OF THE CIT(A) TO THE EFFECT THAT NO MOTIVE TO SHIFT THE PROFITS OUTSIDE INDIA OR TO EVADE TAXES IN INDIA, IN THE RELATED PARTY TRANSACTIONS I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 8 WHICH HAS BEEN ASCRIBED BY THE AO, IS ALSO NOT DETERMI NATIVE. TO REITERATE, ONCE THE TRANSACTIONS FALL UNDER THE CATEGORY OF INTERNATI ONAL TRANSACTIONS WITHIN THE MEANING OF SECTION 92B(1) OF THE ACT, THE TRANS FER PRICING MECHANISM DOES GET ACTIVATED AND IT HAS RIGHTLY BEEN SE T INTO MOTION IN THE PRESENT CASE. IN THIS REGARD, SECTION 92(1) OF THE ACT PROVIDES AS UNDER: 92(1) ANY INCOME ARISING FROM AN INTERNATIONAL TRANSAC TION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. THE WORD IMPLIED IN SECTION 92(1) IS SHALL CARRIES ON A MANDATE FOR THE TAXING AUTHORITY. ONCE THERE IS AN INTERNATIONAL TRANSAC TION, THE INCOME ARISING THEREFROM HAS TO BE COMPUTED IN ACCORDANCE WITH SECTION 92(1) OF THE ACT. 16. IT IS PERTINENT TO POINT OUT HERE THAT THE QUANTIFICATION UNDER THE TRANSFER PRICING PROVISIONS, AS HAS BEEN DONE BY THE AO, DETERMINING THE ASSESSED INCOME OF THE ASSESSEE AT `19180579, BY MAKI NG AN ADDITION OF `27876273, ON ACCOUNT OF ARMS LENGTH PRICE, HAD NOT B EEN CHALLENGED BY THE ASSESSEE. THE ISSUE BEFORE US, TO REITERATE, IS ONLY WHETHER THE CIT(A) HAS CORRECTLY HELD THE TRANSFER PRICING PROVISIONS TO BE NO T APPLICABLE HERETO. 17. AS SUCH, NEITHER OF THE CASE LAWS SOUGHT TO BE RELI ED ON BY THE ASSESSEE, ARE APPLICABLE. 18. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT : (I) THE CIT(A) HAS ERRED IN OBSERVING THAT SINCE NO CR OSS BORDER TRANSACTION IS INVOLVED, THE TRANSFER PRICING PROVISION S ARE NOT ATTRACTED. ONCE THE TRANSACTIONS INVOLVED ARE INTERNATIONA L TRANSACTIONS WITHIN THE MEANING OF SECTION 92B(1) OF THE ACT, THE TRANSFER PRICING PROVISIONS HAVE RIGHTLY BEEN INVOLV ED. (II) IN VIEW OF THE CLEAR PROVISIONS OF SECTIONS 92B( 1) AND SECTION 92(1), THERE IS NO REQUIREMENT TO PROVE ANY MOTIVE TO SH IFT PROFITS OUTSIDE INDIA OR TO EVADE TAXES IN INDIA IN THE RELATED PARTY TRANSACTIONS AND THE CIT(A) HAS ALSO ERRED IN PLA CING RELIANCE ON THE FACT THAT NO SUCH FINDING WAS RECORDED BY THE AO. DCIT VS. INDO-AMERICAN JEWELLERY (I.T.A. NO.6194/MUM./2008 FOR ASSESSMENT YEAR 2004-05) HAS N O APPLICATION TO THE PRESENT CASE, AS HEREIN, THE ISSUE IS AS TO WHETHER THE TRANSFER PRICING PROVISIONS HAVE BEEN RIG HTLY HELD I.T.A. NO.3991/DEL./2010 (A.Y. : 2006-07) 9 TO BE NOT APPLICABLE. THIS EVIDENTLY WAS NOT THE DISPUTE IN INDO- AMERICAN JEWELLERY(SUPRA). 19. FOR THE ABOVE DISCUSSION, THE GRIEVANCE OF THE DEP ARTMENT IS FOUND TO BE JUSTIFIED AND ACCEPTED AS SUCH. 20. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON 27/05/2011. SD/- SD/- (K.D. RANJAN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 27/05/2011. SKB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XX, NEW DELHI. 5. DR, ITAT DEPUTY REGISTRAR, ITAT, DELHI BENCHES